Cities, counties take back corporate tax breaks
Cities, counties take back tax breaks they gave companies that broke
promises to create jobs
By Don Babwin, Associated Press Writer , On Saturday January 2, 2010, 12:36
pm EST
CHICAGO (AP) -- Cash-strapped communities have a message for corporations
that promised jobs in return for tax breaks: A deal's a deal.
As the economy sputters along, municipalities struggling to fix roads, fund
schools and pay bills increasingly are rescinding tax abatements to
companies that don't hire enough workers, that lay them off or that close up
shop. At the same time, they're sharpening new incentive deals, leaving no
doubt what is expected of companies and what will happen if they don't
deliver.
"We will roll out the red carpet as much as we can (but) they are going to
honor the contract," said Brendon Gallagher, an alderman in DeKalb, Ill.,
where Target Corp. got abatements from the city, county, school district and
other taxing bodies after promising at least 500 jobs at a local
distribution center.
So when the company came up 66 workers short in 2009, Target got word its
next tax bill would be jumping almost $600,000 -- more than half of which
goes to the local school district, where teachers and programs have been cut
as coffers dried up.
The newfound boldness comes from communities and states that have long bent
over backward to lure companies and jobs by offering abatements and other
incentives -- to the tune of an estimated $60 billion a year in the United
States, according to the Washington-based economic development watchdog
group Good Jobs First.
The willingness to write -- and enforce -- the "clawback" provisions comes
even as companies across the country struggle and against a broader backdrop
of governments getting tough on business practices.
What's more, the poor economy has communities thinking about how the tax
breaks they dole out will play with residents who have grown increasingly
angry at the thought of anything that hints of corporate welfare.
"The public is a lot more aware of tax abatements and there's a climate of
skepticism about what can be perceived as corporate handouts," said Geoff
McKimm, a member of the Monroe County Council in Indiana.
With that in mind, county officials drew up an agreement with Printpack, a
packaging company, that includes a provision requiring the company to refund
either $197,000 or that year's abatement, whichever is more, if the number
of employees at a new factory falls below 140.
Another provision requires Printpack to refund the entire abatement if it
employs fewer than 75 people -- a guarantee meant to prevent companies from
leaving a "skeleton crew" at a location to avoid paying up.
"With so many businesses going to Mexico, communities are desperately trying
to hold onto jobs," said Amy Gerstman, the county's auditor. "This was a
carefully put-together abatement."
And businesses increasingly are being forced to hold up their end of the
bargain.
In Texas, where companies can get money from the Texas Enterprise Fund if
they promise to create a specific number of jobs, the number of clawbacks
rose to nine in 2008, compared to a total of seven for the previous three
years combined, the governor's office said.
In Illinois, the number of companies from which the state sought to
"recapture" incentive money has steadily climbed, from six in 2005 to a
total of 37 by 2008.
Meanwhile, more communities are contemplating similar action.
In St. Louis County, officials have told Pfizer Inc. that if it cuts 600
jobs, as planned, they'll rethink the $7 million in tax breaks they promised
to give the drugmaker for the next 10 years.
And in Detroit, while the state was approving expanded tax credits in
exchange for General Motors Co.'s promise not to move its headquarters, the
city council was talking about cracking down on tax breaks for GM and other
major employers.
"We know that there are more clawbacks getting triggered because more deals
are falling short," said Greg LeRoy, executive director of Good Jobs First,
who has written extensively on clawbacks.
It's unclear exactly how much is being recovered because nobody collects
comprehensive statistics on clawbacks, LeRoy and others say. States that do
keep statistics track only their own deals, not those initiated by local
governments. Communities also may revoke the entire abatement or only a
portion of it, while others sometimes simply rule out future abatements,
LeRoy said.
Finally, some communities crack down on companies quietly, out of concern
that they could scare off other potential employers, LeRoy said. He said
that fear persists even though there is no evidence that having or enforcing
clawbacks poisons the business climate.
"We were told that we were going to ruin Topeka's ability to attract
businesses; we'd give Topeka a black eye," said James Crowl, assistant
county counselor in Shawnee County, where last year officials approved a
settlement that calls for Target to pay $200,000 a year for 10 years after
failing to create as many jobs as it had agreed to.
So what happened?
"Last year we opened a Home Depot distribution center right next door," said
County Counselor Rich Eckert.
In DeKalb, some officials were concerned about sending a bad message to
other businesses considering locating there, said Gallagher, the alderman.
But he didn't buy it.
"We are 65 miles from Chicago (and) if someone wants to locate 120 miles
from Chicago, I can't stop them," he said.
Besides, he said, $600,000 means less to Target than to a struggling
community, where he said the city alone is facing a $2 million revenue
shortfall.
Target was disappointed, but understood the decision, spokeswoman Jill
Hornbacher said.
"We are very committed to DeKalb and that distribution center and proud to
be there," she said.
And don't expect communities to back down soon, officials said.
"There is much more (language) tied to jobs now because of economy," said
Lee Garrity, city manager in Winston-Salem, N.C., which along with the
surrounding county is sharing more than $26 million that computer giant Dell
Inc. paid after announcing it will close its assembly plant next year.
Garrity said officials are thinking about provisions that are even more
specific.
"We are discussing whether we need to require the jobs of the company go to
people who live in the city," he said.
http://abcnews.go.com/Business/wireStory?id=9464693
<http://abcnews.go.com/Business/wireStory?id=9464693>
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